##### Table of Contents



UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended: September 24, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
 to
 Commission File Number: 000-03905
 TRANSCAT, INC.
  Ohio
(State or other jurisdiction of incorporation or organization)
    
    16-0874418
(I.R.S. Employer Identification No.)
 35 Vantage Point Drive, Rochester, New York 14624
 (585) 352-7777
 þ o
 o þ
 o þ




---



Page(s)PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements (unaudited):Consolidated Statements of Operations and Comprehensive Income (Loss) for the Second Quarter and Six Months Ended September 24, 2005 and September 25, 2004
    
    
    3Consolidated Balance Sheets as of September 24, 2005 and March 26, 2005
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended September 24, 2005 and September 25, 2004
    
    
    5Consolidated Statements of Stockholders Equity for the Six Months Ended September 24, 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15-26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27-28Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30INDEX TO EXHIBITS
    
    
    31Exhibit 10.1Exhibit 31.1 Certification of Chief Executive OfficerExhibit 31.2 Certification of Chief Financial OfficerExhibit 32.1 Section 1350 Certifications
  2




---



##### Table of Contents



TRANSCAT, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (Unaudited)
    
    
    (Unaudited)Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Product Sales
    
    $
    9,412
    
    
    $
    8,308
    
    
    $
    18,797
    
    
    $
    17,172Service Sales
    
    
    4,707
    
    
    
    4,180
    
    
    
    9,387
    
    
    
    8,538Net Sales
    
    
    14,119
    
    
    
    12,488
    
    
    
    28,184
    
    
    
    25,710Cost of Products Sold
    
    
    7,087
    
    
    
    6,467
    
    
    
    14,213
    
    
    
    13,291Cost of Services Sold
    
    
    3,423
    
    
    
    3,112
    
    
    
    6,757
    
    
    
    6,384Total Cost of Products and Services Sold
    
    
    10,510
    
    
    
    9,579
    
    
    
    20,970
    
    
    
    19,675Gross Profit
    
    
    3,609
    
    
    
    2,909
    
    
    
    7,214
    
    
    
    6,035Selling, Marketing, and Warehouse Expenses
    
    
    1,850
    
    
    
    1,702
    
    
    
    3,943
    
    
    
    3,806Administrative Expenses
    
    
    1,247
    
    
    
    1,124
    
    
    
    2,429
    
    
    
    2,418Total Operating Expenses
    
    
    3,097
    
    
    
    2,826
    
    
    
    6,372
    
    
    
    6,224Operating Income (Loss)
    
    
    512
    
    
    
    83
    
    
    
    842
    
    
    
    (189
    )Interest Expense
    
    
    109
    
    
    
    73
    
    
    
    223
    
    
    
    145Other Expense
    
    
    54
    
    
    
    103
    
    
    
    96
    
    
    
    186Total Other Expense
    
    
    163
    
    
    
    176
    
    
    
    319
    
    
    
    331Income (Loss) Before Income Taxes
    
    
    349
    
    
    
    (93
    )
    
    
    523
    
    
    
    (520
    )Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income (Loss)
    
    
    349
    
    
    
    (93
    )
    
    
    523
    
    
    
    (520
    )Other Comprehensive Income:Currency Translation Adjustment
    
    
    99
    
    
    
    111
    
    
    
    80
    
    
    
    84Comprehensive Income (Loss)
    
    $
    448
    
    
    $
    18
    
    
    $
    603
    
    
    $
    (436
    )Basic Earnings (Loss) Per Share
    
    $
    0.05
    
    
    $
    (0.01
    )
    
    $
    0.08
    
    
    $
    (0.08
    )Average Shares Outstanding (in thousands)
    
    
    6,618
    
    
    
    6,372
    
    
    
    6,574
    
    
    
    6,349Diluted Earnings (Loss) Per Share
    
    $
    0.05
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    (0.08
    )Average Shares Outstanding (in thousands)
    
    
    7,315
    
    
    
    6,372
    
    
    
    7,269
    
    
    
    6,349
  3




---



##### Table of Contents



TRANSCAT, INC.  CONSOLIDATED BALANCE SHEETS
 (Unaudited)September
    
    
    March24, 2005
    
    
    26, 2005ASSETSCurrent Assets:Cash
    
    $
    95
    
    
    $
    106Accounts Receivable, less allowance for doubtful accounts of $69
and $56 as of September 24, 2005 and March 26, 2005, respectively
    
    
    6,279
    
    
    
    8,089Other Receivables
    
    
    639
    
    
    
    313Finished Goods Inventory, net
    
    
    5,440
    
    
    
    5,902Prepaid Expenses and Deferred Charges
    
    
    859
    
    
    
    630Total Current Assets
    
    
    13,312
    
    
    
    15,040Property, Plant and Equipment, net
    
    
    1,985
    
    
    
    1,984Capital Leases, net
    
    
    82
    
    
    
    115Goodwill
    
    
    2,524
    
    
    
    2,524Prepaid Expenses and Deferred Charges
    
    
    157
    
    
    
    188Other Assets
    
    
    268
    
    
    
    261Total Assets
    
    $
    18,328
    
    
    $
    20,112LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts Payable
    
    $
    4,130
    
    
    $
    4,544Accrued Payrolls, Commissions, and Other
    
    
    1,716
    
    
    
    1,993Income Taxes Payable
    
    
    100
    
    
    
    100Deposits
    
    
    1
    
    
    
    38Current Portion of Term Loan
    
    
    758
    
    
    
    758Current Portion of Capital Lease Obligations
    
    
    69
    
    
    
    66Revolving Line of Credit
    
    
    4,004
    
    
    
    5,498Total Current Liabilities
    
    
    10,778
    
    
    
    12,997Term Loan, less current portion
    
    
    596
    
    
    
    1,020Capital Lease Obligations, less current portion
    
    
    21
    
    
    
    56Deferred Compensation
    
    
    175
    
    
    
    181Deferred Gain on TPG Divestiture
    
    
    1,544
    
    
    
    1,544Total Liabilities
    
    
    13,114
    
    
    
    15,798Stockholders Equity:Common Stock, par value $0.50 per share, 30,000,000 shares authorized;
6,851,197 and 6,700,505 shares issued as of September 24, 2005 and
March 26, 2005, respectively; 6,603,933 and 6,453,241 shares
outstanding as of September 24, 2005 and March 26, 2005, respectively
    
    
    3,426
    
    
    
    3,350Capital in Excess of Par Value
    
    
    4,236
    
    
    
    3,995Warrants
    
    
    430
    
    
    
    430Unearned Compensation
    
    
    (37
    )
    
    
    (17
    )Accumulated Other Comprehensive Gain
    
    
    176
    
    
    
    96Accumulated Deficit
    
    
    (2,179
    )
    
    
    (2,702
    )Less: Treasury Stock, at cost, 247,264 shares as of September 24, 2005 and
March 26, 2005, respectively
    
    
    (838
    )
    
    
    (838
    )Total Stockholders Equity
    
    
    5,214
    
    
    
    4,314Total Liabilities and Stockholders Equity
    
    $
    18,328
    
    
    $
    20,112
  4




---



##### Table of Contents



TRANSCAT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)Six Months EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Cash Flows from Operating Activities:Net Income (Loss)
    
    $
    523
    
    
    $
    (520
    )Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:Depreciation and Amortization
    
    
    610
    
    
    
    727Provision for Doubtful Accounts Receivable
    
    
    13
    
    
    
    (9
    )Provision for Returns
    
    
    (3
    )
    
    
    Provision for Slow Moving or Obsolete Inventory
    
    
    6
    
    
    
    Common Stock Expense
    
    
    44
    
    
    
    27Amortization of Unearned Compensation
    
    
    24
    
    
    
    98Changes in Assets and Liabilities:Accounts Receivable and Other Receivables
    
    
    1,474
    
    
    
    2,200Inventories
    
    
    456
    
    
    
    (900
    )Income Taxes Receivable / Payable
    
    
    
    
    
    
    144Prepaid Expenses, Deferred Charges, and Other
    
    
    (421
    )
    
    
    (473
    )Accounts Payable
    
    
    (414
    )
    
    
    696Accrued Payrolls, Commissions, and Other
    
    
    (277
    )
    
    
    (419
    )Deposits
    
    
    (37
    )
    
    
    Deferred Compensation
    
    
    (6
    )
    
    
    (7
    )Net Cash Provided by Operating Activities
    
    
    1,992
    
    
    
    1,564Cash Flows from Investing Activities:Purchase of Property, Plant and Equipment
    
    
    (362
    )
    
    
    (414
    )Net Cash Used in Investing Activities
    
    
    (362
    )
    
    
    (414
    )Cash Flows from Financing Activities:Revolving Line of Credit, net
    
    
    (1,494
    )
    
    
    (1,162
    )Payments on Term Loans
    
    
    (424
    )
    
    
    (418
    )Payments on Capital Leases
    
    
    (32
    )
    
    
    (31
    )Issuance of Common Stock
    
    
    229
    
    
    
    16Net Cash Used in Financing Activities
    
    
    (1,721
    )
    
    
    (1,595
    )Effect of Exchange Rate Changes on Cash
    
    
    80
    
    
    
    83Net Decrease in Cash
    
    
    (11
    )
    
    
    (362
    )Cash at Beginning of Period
    
    
    106
    
    
    
    547Cash at End of Period
    
    $
    95
    
    
    $
    185Supplemental
Disclosure of Non-Cash Financing Activity:Disposal of Fully Reserved Obsolete Inventory
    
    $
    93
    
    
    $
    
  5




---



##### Table of Contents



TRANSCAT, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Accum-Capital
    
    
    
    
    
    
    Un-
    
    
    ulatedCommon Stock
    
    
    In
    
    
    
    
    
    
    earned
    
    
    Other
    
    
    
    
    
    
    Treasury StockOutstanding
    
    
    Excess
    
    
    
    
    
    
    Comp-
    
    
    Compre-
    
    
    Accum-
    
    
    Outstanding$0.50 Par Value
    
    
    of Par
    
    
    War-
    
    
    ensa-
    
    
    hensive
    
    
    ulated
    
    
    at CostShares
    
    
    Amount
    
    
    Value
    
    
    rants
    
    
    tion
    
    
    Gain
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance as of March 26, 2005
    
    
    6,453
    
    
    $
    3,350
    
    
    $
    3,995
    
    
    $
    430
    
    
    $
    (17
    )
    
    $
    96
    
    
    $
    (2,702
    )
    
    
    247
    
    
    $
    (838
    )
    
    $
    4,314Issuance of Common Stock
    
    
    121
    
    
    
    61
    
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229Restricted Stock:Issuance of Restricted Stock
    
    
    30
    
    
    
    15
    
    
    
    73
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Amortization of Unearned
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Comprehensive Income:Currency Translation
Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    523
    
    
    
    
    
    
    
    
    
    
    
    523Balance as of September 24, 2005
    
    
    6,604
    
    
    $
    3,426
    
    
    $
    4,236
    
    
    $
    430
    
    
    $
    (37
    )
    
    $
    176
    
    
    $
    (2,179
    )
    
    
    247
    
    
    $
    (838
    )
    
    $
    5,214
  6




---



##### Table of Contents



TRANSCAT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1
 NATURE OF BUSINESS AND BASIS OF PRESENTATION
 Description of Business:
 Basis of Presentation:
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation:
 Use of Estimates:
 Changes in Estimates:
 Fiscal Year:
 Revenue Recognition:
 Shipping and Handling Costs:
 Rebates:
 7




---



##### Table of Contents



Cooperative Advertising Income:
 Comprehensive Income:
 Currency Translation Adjustment:
  Earnings Per Share:
  Second
Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Shares Outstanding:Dilutive
    
    
    697
    
    
    
    
    
    
    
    695
    
    
    
    Anti-dilutive
    
    
    501
    
    
    
    1,513
    
    
    
    503
    
    
    
    1,513Total
    
    
    1,198
    
    
    
    1,513
    
    
    
    1,198
    
    
    
    1,513Range of Exercise Prices per Share:Options
    
    $
    0.80-$4.26
    
    
    $
    0.80-$3.00
    
    
    $
    0.80-$4.26
    
    
    $
    0.80-$3.00Warrants
    
    $
    0.97-$4.26
    
    
    $
    0.97-$2.91
    
    
    $
    0.97-$4.26
    
    
    $
    0.97-$2.91
 Accounts Receivable:
 Inventory:
 8




---



##### Table of Contents



Properties, Depreciation, and Amortization:
 Goodwill:
 Deferred Catalog Costs:
 Deferred Compensation:
  Deferred Gain on TPG:
 Deferred Taxes:
 Fair Value of Financial Instruments:
 
    
    Cash, Accounts Receivables, and Accounts Payables: The carrying amounts reported on the
Consolidated Balance Sheets for cash, accounts receivables, and accounts payables
approximate fair value, due to their short-term nature.
    
    Debt: The carrying amount of debt under the Credit Agreement, as such term is defined
in Note 3 to the Consolidated Financial Statements, approximates fair value due to variable
interest rate pricing.
 9




---



##### Table of Contents



Stock Options:
  Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Net Income (Loss), as reported
    
    $
    349
    
    
    $
    (93
    )
    
    $
    523
    
    
    $
    (520
    )Add: Stock-based employee compensation expense
included in reported net income (loss), net of related
tax effects
    
    
    11
    
    
    
    21
    
    
    
    24
    
    
    
    98Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (59
    )
    
    
    (48
    )
    
    
    (120
    )
    
    
    (152
    )Pro Forma Net Income (Loss)
    
    $
    301
    
    
    $
    (120
    )
    
    $
    427
    
    
    $
    (574
    )Earnings (Loss) Per Share:Basic  as reported
    
    $
    0.05
    
    
    $
    (0.01
    )
    
    $
    0.08
    
    
    $
    (0.08
    )Basic  pro forma
    
    $
    0.05
    
    
    $
    (0.02
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Average Shares Outstanding
    
    
    6,618
    
    
    
    6,372
    
    
    
    6,574
    
    
    
    6,349Diluted  as reported
    
    $
    0.05
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    (0.08
    )Diluted  pro forma
    
    $
    0.04
    
    
    $
    (0.02
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Average Shares Outstanding
    
    
    7,315
    
    
    
    6,372
    
    
    
    7,269
    
    
    
    6,349
 10




---



##### Table of Contents



NOTE 3
 DEBT
 Description.
    Term Loans.
 Principal Payments After GivingEffect to Excess Cash Flow PaymentsTerm Loan A
    
    
    Term Loan B
    
    
    TotalFiscal Year 2006 (1)
    
    
    250
    
    
    
    174
    
    
    
    424Fiscal Year 2007
    
    
    500
    
    
    
    97
    
    
    
    597Fiscal Year 2008
    
    
    333
    
    
    
    
    
    
    
    333Total
    
    $
    1,083
    
    
    $
    271
    
    
    $
    1,354
 
 (1)
    
    On the Consolidated Balance Sheets as of September 24, 2005, the $0.8 million current
portion of term loan consists of $0.7 million from principal term loan payments for the
remaining six months of fiscal year 2006 and for the first six months of fiscal year 2007;
and, $0.1 million from estimated excess cash flow payments. LOC.
  11




---



##### Table of Contents



Interest.
 Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus .50% or
    
    Prime Rate plus .75%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.25%
    
    
    
    (b) LIBOR plus 2.75%2
    
    1.25 to 1.49
    
    (a) Prime Rate plus .25% or
    
    Prime Rate plus .50%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.00%
    
    
    
    (b) LIBOR plus 2.50%3
    
    1.50 or greater
    
    (a) Prime Rate plus 0% or
    
    Prime Rate plus .25%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 2.75%
    
    
    
    (b) LIBOR plus 2.25%
 Covenants.
 Loan Costs.
 Other Terms.
   12




---



##### Table of Contents



NOTE 4
 SEGMENT AND GEOGRAPHIC DATA
  Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004Net Sales:Product
    
    $
    9,412
    
    
    $
    8,308
    
    
    $
    18,797
    
    
    $
    17,172Service
    
    
    4,707
    
    
    
    4,180
    
    
    
    9,387
    
    
    
    8,538Total
    
    
    14,119
    
    
    
    12,488
    
    
    
    28,184
    
    
    
    25,710Gross Profit:Product
    
    
    2,325
    
    
    
    1,841
    
    
    
    4,584
    
    
    
    3,881Service
    
    
    1,284
    
    
    
    1,068
    
    
    
    2,630
    
    
    
    2,154Total
    
    
    3,609
    
    
    
    2,909
    
    
    
    7,214
    
    
    
    6,035Operating Expenses:Product
    
    
    1,793
    
    
    
    1,728
    
    
    
    3,699
    
    
    
    3,8498Service
    
    
    1,304
    
    
    
    1,098
    
    
    
    2,673
    
    
    
    2,376Total
    
    
    3,097
    
    
    
    2,826
    
    
    
    6,372
    
    
    
    6,224Operating Income (Loss):Product
    
    
    532
    
    
    
    113
    
    
    
    885
    
    
    
    33Service
    
    
    (20
    )
    
    
    (30
    )
    
    
    (43
    )
    
    
    (222
    )Total
    
    
    512
    
    
    
    83
    
    
    
    842
    
    
    
    (189
    )Unallocated Amounts:Other Expense (including interest)
    
    
    163
    
    
    
    176
    
    
    
    319
    
    
    
    331Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    163
    
    
    
    176
    
    
    
    319
    
    
    
    331Net Income (Loss)
    
    $
    349
    
    
    $
    (93
    )
    
    $
    523
    
    
    $
    (520
    )
 13




---



##### Table of Contents



NOTE 5
 COMMITMENTS
 Unconditional Purchase Obligation:
  NOTE 6  VENDOR CONCENTRATION
  14




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements.
 Rounding.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Use of Estimates:
 Changes in Estimates:
 Revenue Recognition:
 Accounts Receivable:
 Inventory:
 15




---



##### Table of Contents



Properties, Depreciation, and Amortization:
 Goodwill:
 Deferred Catalog Costs:
 Deferred Gain on TPG:
 Deferred Taxes:
 Stock Options:
 Off-Balance Sheet Arrangements:
 16




---



##### Table of Contents



RESULTS OF OPERATIONS
  (Unaudited)
    
    
    (Unaudited)Second Quarter Ended
    
    
    Six Months EndedSeptember
    
    
    September
    
    
    September
    
    
    September24, 2005
    
    
    25, 2004
    
    
    24, 2005
    
    
    25, 2004As a Percentage of Net Sales:Product Sales
    
    
    66.7
    %
    
    
    66.5
    %
    
    
    66.7
    %
    
    
    66.8
    %Service Sales
    
    
    33.3
    %
    
    
    33.5
    %
    
    
    33.3
    %
    
    
    33.2
    %Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Product Gross Profit
    
    
    24.7
    %
    
    
    22.2
    %
    
    
    24.4
    %
    
    
    22.6
    %Service Gross Profit
    
    
    27.3
    %
    
    
    25.6
    %
    
    
    28.0
    %
    
    
    25.2
    %Total Gross Profit
    
    
    25.6
    %
    
    
    23.3
    %
    
    
    25.6
    %
    
    
    23.5
    %Selling, Marketing, and Warehouse Expenses
    
    
    13.1
    %
    
    
    13.6
    %
    
    
    14.0
    %
    
    
    14.8
    %Administrative Expenses
    
    
    8.8
    %
    
    
    9.0
    %
    
    
    8.6
    %
    
    
    9.4
    %Total Operating Expenses
    
    
    21.9
    %
    
    
    22.6
    %
    
    
    22.6
    %
    
    
    24.2
    %Operating Income (Loss)
    
    
    3.7
    %
    
    
    0.7
    %
    
    
    3.0
    %
    
    
    (0.7
    )%Interest Expense
    
    
    0.8
    %
    
    
    0.6
    %
    
    
    0.8
    %
    
    
    0.6
    %Other Expense
    
    
    0.4
    %
    
    
    0.8
    %
    
    
    0.3
    %
    
    
    0.7
    %Total Other Expense
    
    
    1.2
    %
    
    
    1.4
    %
    
    
    1.1
    %
    
    
    1.3
    %Income (Loss) Before Income Taxes
    
    
    2.5
    %
    
    
    (0.7
    )%
    
    
    1.9
    %
    
    
    (2.0
    )%Provision for Income Taxes
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Net Income (Loss)
    
    
    2.5
    %
    
    
    (0.7
    )%
    
    
    1.9
    %
    
    
    (2.0
    )%
 17




---



##### Table of Contents



SECOND QUARTER ENDED SEPTEMBER 24, 2005 COMPARED TO SECOND QUARTER ENDED SEPTEMBER 25, 2004
(dollars in millions):
 Sales:
 Second Quarter EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Net Sales:Product
    
    $
    9.4
    
    
    $
    8.3Service
    
    
    4.7
    
    
    
    4.2Total
    
    $
    14.1
    
    
    $
    12.5
   FY 2006
    
    
    FY 2005Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Sales Growth (Decline)
    
    
    13.3
    %
    
    
    5.6
    %
    
    
    
    (2.9
    %)
    
    
    6.5
    %
    
    
    9.2
    %
    
    
    11.3
    %
  FY 2006 Second Quarter
    
    
    FY 2005 Second Quarter (1)Percent of
    
    Gross
    
    
    Percent of
    
    GrossNet Sales
    
    Profit % (2)
    
    
    Net Sales
    
    Profit % (2)Core
    
    
    84.7
    %
    
    
    24.9
    %
    
    
    
    86.1
    %
    
    
    24.3
    %Government
    
    
    1.6
    %
    
    
    2.1
    %
    
    
    
    3.9
    %
    
    
    3.2
    %Other
    
    
    13.7
    %
    
    
    13.9
    %
    
    
    
    10.0
    %
    
    
    14.4
    %Total
    
    
    100.0
    %
    
    
    23.0
    %
    
    
    
    100.0
    %
    
    
    22.5
    %
 
 (1)
    
    Certain prior year customer reclassifications have been made to conform with current channel definitions.(2)
    
    Calculated at net sales less purchase costs. 18




---



##### Table of Contents



FY 2006
    
    
    
    FY 2005Q2
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Total Unshippable Product Orders
    
    $
    1.5
    
    
    $
    1.3
    
    
    
    $
    1.3
    
    
    $
    1.3
    
    
    $
    1.5
    
    
    $
    1.5% of Unshippable Product Orders
that are Backorders
    
    
    72.1
    %
    
    
    78.7
    %
    
    
    
    76.9
    %
    
    
    76.9
    %
    
    
    80.0
    %
    
    
    80.2
    %
  FY 2006
    
    
    FY 2005Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Sales Growth (Decline)
    
    
    11.9
    %
    
    
    6.8
    %
    
    
    
    14.6
    %
    
    
    0.0
    %
    
    
    (2.3
    %)
    
    
    (4.3
    %)
 Gross Profit:
 Second Quarter EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Gross Profit:Product
    
    $
    2.3
    
    
    $
    1.8Service
    
    
    1.3
    
    
    
    1.1Total
    
    $
    3.6
    
    
    $
    2.9
   19




---



##### Table of Contents



FY 2006

    
    
    FY 2005Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Product Gross Profit % (1)
    
    
    22.6
    %
    
    
    22.8
    %
    
    
    
    22.2
    %
    
    
    23.7
    %
    
    
    22.0
    %
    
    
    21.8
    %Other Income (Expense) % (2)
    
    
    1.9
    %
    
    
    1.7
    %
    
    
    
    3.5
    %
    
    
    (0.5
    %)
    
    
    (0.3
    %)
    
    
    0.7
    %Product Gross Profit %
    
    
    24.5
    %
    
    
    24.5
    %
    
    
    
    25.7
    %
    
    
    23.2
    %
    
    
    21.7
    %
    
    
    22.5
    %
 
 (1)
    
    Calculated at net sales less purchase costs.(2)
    
    Includes vendor rebates, cooperative advertising income, freight billed to customers,
freight expenses, and direct shipping costs.  FY 2006
    
    
    FY 2005Q2
    
    Q1
    
    
    Q4
    
    Q3
    
    Q2
    
    Q1Service Gross Profit %
    
    
    27.7
    %
    
    
    27.7
    %
    
    
    
    32.7
    %
    
    
    28.6
    %
    
    
    26.2
    %
    
    
    25.0
    %
 Operating Expenses:
 Second Quarter EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    1.9
    
    
    $
    1.7Administrative
    
    
    1.2
    
    
    
    1.1Total
    
    $
    3.1
    
    
    $
    2.8
  Other Expense:
 Second Quarter EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Other Expense:Interest Expense
    
    $
    0.1
    
    
    $
    0.1Other Expense
    
    
    0.1
    
    
    
    0.1Total
    
    $
    0.2
    
    
    $
    0.2
  20




---



##### Table of Contents



Taxes:
 Second Quarter EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Provision for Income Taxes
    
    $
    
    
    
    $
    
  SIX MONTHS ENDED SEPTEMBER 24, 2005 COMPARED TO SIX MONTHS ENDED SEPTEMBER 25, 2004 (DOLLARS IN
MILLIONS):
 Sales:
 Six Months EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Net Sales:Product
    
    $
    18.8
    
    
    $
    17.2Service
    
    
    9.4
    
    
    
    8.5Total
    
    $
    28.2
    
    
    $
    25.7
    FY 2006 Six Months
    
    
    
    FY 2005 Six Months (1)Ended September 24, 2005
    
    
    
    Ended September 25, 2004Percent of
    
    
    Gross
    
    
    
    Percent of
    
    
    GrossNet Sales
    
    
    Profit % (2)
    
    
    
    Net Sales
    
    
    Profit % (2)Core
    
    
    
    
    
    
    85.0
    %
    
    
    25.0
    %
    
    
    
    86.4
    %
    
    
    24.1
    %Government
    
    
    
    
    
    
    2.0
    %
    
    
    1.9
    %
    
    
    
    3.3
    %
    
    
    1.8
    %Other
    
    
    
    
    
    
    13.0
    %
    
    
    13.4
    %
    
    
    
    10.3
    %
    
    
    14.3
    %Total
    
    
    
    
    100.0
    %
    
    
    23.0
    %
    
    
    
    100.0
    %
    
    
    22.4
    %
  (1)
    
    Certain prior year customer reclassifications have been made to conform with current channel definitions.(2)
    
    Calculated at net sales less purchase costs.
 21




---



##### Table of Contents



Gross Profit:
 Six Months EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Gross Profit:Product
    
    $
    4.6
    
    
    $
    3.9Service
    
    
    2.6
    
    
    
    2.1Total
    
    $
    7.2
    
    
    $
    6.0
     Operating Expenses:
 Six Months EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Operating Expenses:Selling, Marketing, and Warehouse
    
    $
    3.9
    
    
    $
    3.8Administrative
    
    
    2.4
    
    
    
    2.4Total
    
    $
    6.3
    
    
    $
    6.2
  22




---



##### Table of Contents



Other Expense:
 Six Months EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Other Expense:Interest Expense
    
    $
    0.2
    
    
    $
    0.1Other Expense
    
    
    0.1
    
    
    
    0.2Total
    
    $
    0.3
    
    
    $
    0.3
  Taxes:
 Six Months EndedSeptember
    
    September24, 2005
    
    25, 2004Provision for Income Taxes
    
    $
    
    
    
    $
    
  23




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows.
 Six Months EndedSeptember
    
    
    September24, 2005
    
    
    25, 2004Cash Provided by (Used in):Operating Activities
    
    $
    1,992
    
    
    $
    1,564Investing Activities
    
    
    (362
    )
    
    
    (414
    )Financing Activities
    
    
    (1,721
    )
    
    
    (1,595
    )
  
    
    Inventory/Accounts Payable: Our inventory decreased by $0.5 million from March 26,
2005 to September 24, 2005. As previously reported, our inventory at March 26, 2005 was
higher than we anticipated as product sales were below our expectations. Our inventory
increased by $0.9 million from March 31, 2004 to September 25, 2004 in preparation for
our historically strong six month product sales period. Our inventory at September 24,
2005 is higher than our inventory at September 25, 2004 primarily to support the product
sales growth anticipated for the second half of fiscal year 2006 compared to the second
half of fiscal year 2005. Our decline in accounts payable resulted in a significant
improvement in our accounts payable to inventory ratio as follows (dollars in millions):
 September
    
    
    September24, 2005
    
    
    25, 2004Accounts Payable
    
    $
    4.1
    
    
    $
    4.8Inventory, net
    
    $
    5.4
    
    
    $
    4.6Accounts Payable/Inventory Ratio
    
    
    0.76
    
    
    
    1.04
 
    
    Receivables: The increase in our accounts receivable at the end of our second
quarter of fiscal year 2006 compared to the end of the second quarter of fiscal year
2005 is due to sales growth in our current second quarter. We have continued to
maintain strong collections on our accounts receivable, reflected in our days sales
outstanding, as the following table illustrates (dollars in millions):
 September
    
    
    September24, 2005
    
    
    25, 2004Net Sales, for the last two fiscal months
    
    $
    9.9
    
    
    $
    9.0Accounts Receivable, net
    
    $
    6.3
    
    
    $
    5.9Days Sales Outstanding (based on 60 days)
    
    
    38
    
    
    
    39
   September
    
    
    September24, 2005
    
    
    25, 2004Term Debt
    
    $
    1.4
    
    
    $
    0.3Revolving Line of Credit
    
    
    4.0
    
    
    
    5.3Capital Lease Obligations
    
    
    0.1
    
    
    
    0.2Total Debt
    
    $
    5.5
    
    
    $
    5.8
 24




---



##### Table of Contents



Debt.
  FY 2006
    
    
    
    FY 2005Q2
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Excess (Shortage) EBITDA
    
    
    33%
    
    
    
    23%
    
    
    
    
22%
    
    
    
    17%
    
    
    
    (20%)
    
    
    
    (16%)
  Unconditional Purchase Obligation.
   25




---



##### Table of Contents



OUTLOOK
      26




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATES
   Fixed ChargeTier
    
    Coverage Ratio
    
    Term Loan A
    
    Term Loan B
    
    LOC1
    
    1.249 or less
    
    (a) Prime Rate plus .50% or
    
    Prime Rate plus .75%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.25%
    
    
    
    (b) LIBOR plus 2.75%2
    
    1.25 to 1.49
    
    (a) Prime Rate plus .25% or
    
    Prime Rate plus .50%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 3.00%
    
    
    
    (b) LIBOR plus 2.50%3
    
    1.50 or greater
    
    (a) Prime Rate plus 0% or
    
    Prime Rate plus .25%
    
    (a) Prime Rate plus 0% or(b) LIBOR plus 2.75%
    
    
    
    (b) LIBOR plus 2.25%
  FOREIGN CURRENCY
  RISK FACTORS
  General Economic Conditions May Have A Material Adverse Effect On Our Operating Results, Financial
Condition, Or Our Ability To Meet Our Commitments.
 We Depend On Manufacturers To Supply Our Inventory And Rely On One Vendor Group To Supply A
Significant Amount Of Our Inventory Purchases. If They Fail To Provide Desired Products To Us,
Increase Prices, Or Fail To Timely Deliver Products, Our Sales Could Suffer.
 27




---



##### Table of Contents



Indebtedness.
 If Existing Shareholders Sell Large Numbers Of Shares Of Our Common Stock, Our Stock Price Could
Decline.
 Our Stock Price Has Been, And May Continue To Be, Volatile.
 
    
    Developments in our relationships with current or future manufacturers of products we
distribute;
    
    Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
    
    Litigation or governmental proceedings or announcements involving us or our industry;
    
    Economic and other external factors, such as disasters or other crises;
    
    Sales of our Common Stock or other securities in the open market;
    
    Period-to-period fluctuations in our operating results; and
    
    Our ability to satisfy our debt obligations.
 We Expect That Our Quarterly Results Of Operations Will Fluctuate. Such Fluctuation Could Cause Our
Stock Price To Decline.
 
    
    Fluctuations in industrial demand for products we sell and/or services we provide; and
    
    Fluctuations in geographic conditions, including currency and other economic conditions.
 If We Fail To Attract And Retain Qualified Personnel, We May Not Be Able To Achieve Our Stated
Corporate Objectives.
 28




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Proposal 1
  Nominees
    
    Votes For
    
    Votes WithheldE. Lee Garelick
    
    
    5,843,002
    
    
    
    257,164Richard J. Harrison
    
    
    6,071,366
    
    
    
    28,800Dr. Harvey J. Palmer
    
    
    6,071,290
    
    
    
    28,876John T. Smith
    
    
    6,071,366
    
    
    
    28,800
   Proposal 2
  Votes For:
    
    
    6,072,401Votes Against:
    
    
    5,687Votes Abstained:
    
    
    22,078Broker Non-Votes:
    


 
 ITEM 6. EXHIBITS
  29




---



##### Table of Contents



SIGNATURES
  TRANSCAT, INC.Date: November 3, 2005
    
    /s/ Carl E. SassanoCarl E. SassanoChairman, President, and Chief Executive OfficerDate: November 3, 2005
    
    /s/ Charles P. HadeedCharles P. HadeedChief Operating Officer, Vice President of Finance, andChief Financial Officer
 30




---



##### Table of Contents



INDEX TO EXHIBITS
 (10)
    
    Material
Contracts10.1
    
    
    Form of Award Notice for
Non-qualified Stock Options granted under the Transcat, Inc. 2003
Incentive Plan(31)
    
    Rule 13a-14(a)/15d-14(a) Certifications31.1
    
    
    Certification of Chief Executive Officer31.2
    
    
    Certification of Chief Financial Officer(32)
    
    Section 1350 Certifications32.1
    
    
    Section 1350 Certifications
 31